Grid Governance Reform for a Clean Energy Transition

This piece was first published in The Regulatory Review on September 6, 2023. It is reprinted with their permission.

To reduce its carbon emissions, experts say that the United States needs both to “electrify” its fossil-fuel dependent infrastructure, such as cars, and shift away from fossil-fuel generated electricity toward low-carbon emission, clean generation.

This shift toward clean energy will require a significant expansion of the wholesale electricity grid—with more clean electric power generation, such as solar and wind farms, and more transmission lines to transport this electricity to local utilities. In a recent article, Daniel E. Walters, associate professor at Texas A&M University School of Law and Andrew N. Kleit, professor at Pennsylvania State University, argue that policymakers who plan and manage the wholesale grid need to do more to include clean energy interests in their decision-making processes if they are to help speed along the nation’s energy transition.

Regional Transmission Organizations (RTOs)—nonprofit corporations run by boards of directors—serve as the primary transmission planning authority and run the majority of wholesale electricity markets. Walters and Kleit explain that the Federal Energy Regulatory Committee (FERC) requires RTOs to be both independent and responsive to industry stakeholders, but otherwise FERC allows RTOs to manage the market’s competing interests and facilitate industry cooperation with little oversight.

Walters and Kleit observe, however, that FERC requires RTOs to respond only to a narrow group of stakeholders, mainly wholesale power suppliers and purchasers, such as utilities. They suggest that this governance model worked when there were only twin policy goals of reliable and affordable energy. But today, Walters and Kleit see a third policy interest at stake: sustainability.

FERC does not obligate RTOs to be responsive to the end users, environmental organizations, state regulators, or other parties that advocate sustainable energy. As a result, RTOs tend to exclude these interests from their decision-making processes, explain Walters and Kleit. In this “corporatist” form of grid governance, private entities receive a “monopoly on representation” over a particular sector of the economy and possess the right to determine policies to regulate that sector.

The result is a power imbalance skewed against clean energy interests and toward incumbent, fossil fuel interests, according to Walters and Kleit. Furthermore, they note that because RTOs are private entities, they lack public disclosure requirements and accountability. This model of corporatist governance, Walters and Kleit conclude, is at odds with the challenges of modern grid governance: balancing affordability and reliability against the need for a clean energy transition.

To illustrate the challenges the existing RTO structure poses for clean energy, Walters and Kleit describe how the RTO PJM Interconnection issued a rule in 2019 that would have diminished the value of state clean energy subsidies.

PJM runs capacity market auctions for generators to bid on supplying electricity to meet future demand. Generators typically bid into the auction at their total cost to produce electricity. State subsidies lower renewable generators’ operating costs, allowing them to bid in at a lower, more competitive price. Walters and Kleit found that PJM received complaints from fossil-fuel generators, which prompted PJM members to vote in favor of a rule that required generators to bid into capacity markets at their operating cost absent clean energy subsidies.

Walters and Kleit explain that the rule could have had the practical effect of pricing renewable generators out of the capacity market, thus depriving those generators of revenue and ultimately raising energy prices for consumers. Walters and Kleit emphasize that the rule also contradicted state policy that favored clean energy. Although the rule received enough public criticism that PJM reversed course in 2021 to exempt subsidized generators from the rule, Walters and Kleit argue that PJM would not have issued the 2019 rule in the first place if its governance process was more inclusive of clean energy interests.

Walters and Kleit also caution that the public outcry against the PJM rule was “extraordinary” and not a reliable measure of accountability because most RTO decisions are complex and obscured from the general public. They urge federal reform of RTOs’ corporatist governance structure so that it can move toward one that resembles that of administrative agencies.

Specifically, Walters and Kleit recommend that RTOs adopt notice-and-comment processes such as those required of federal rulemaking. They explain that, as a “pluralist” mechanism, notice-and-comment rulemaking allows for a diffuse set of interests to “inform and influence” policy decisions. Walters and Kleit also suggest that RTOs mimic the “unified agenda” required of federal agencies, which provides the public with an “up-to-date snapshot” of what issues are being considered and when. The unified agenda, Walters and Kleit observe, helps “translate what is happening for a lay audience” and “improve the ability to make use of a comment period.”

These pluralist reforms, Walters and Kleit conclude, would allow for accessible, transparent grid governance. Walters and Kleit advance the view that a pluralist governance model not only creates more opportunities for clean energy interests to have a voice in shaping the wholesale grid, but they predict it will give democratic legitimacy to the difficult decisions concerning reliability, affordability, and sustainability that RTOs face during a clean-energy transition.

Claire Hill

J.D. Candidate, Carey School of Law

Claire Hill is a J.D. Candidate at the Carey School of Law at the University of Pennsylvania. She is the Associate Editor of The Regulatory Review.